Dow: Traders and investors brace for FOMC
Technical overview remains a cautious one in both time frames, and trader bias still majority sell for both retail and CoT speculators.
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There was still more pricing data to digest out of the US late last week, and it showed:
- Producer prices for the month of August experienced month-on-month (m/m) growth of 0.7% and year-on-year (y/y) of 1.6%, both higher than expected, with the core readings (which exclude food and energy) as anticipated
- Trade pricing data showed m/m growth for import and export pricing and ongoing y/y declines that rose from -4.4% and -7.9% to -3% and -5.5%, respectively
- Preliminary data out of UoM (University of Michigan) revealed that consumer inflation expectations fell for the 12-month period from 3.5% to 3.1% and for the five-year period from 3% to 2.75%. The consumer sentiment reading worsened.
Week ahead - FOMC
As for the week ahead, don't let the light start fool you; it will be impactful, with all eyes on this Wednesday's FOMC (Federal Open Market Committee) policy decision. Expectations are that they'll keep monetary policy on hold with its key rate within the 5.25-5.5% range. Market pricing (CME's FedWatch) nearly fully prices that in, with a minority expecting a rate hike thereafter.
Traders anticipate any changes to the latter following the release of their projections to see if there are any changes in the 'dot plot' from what we saw last June.
Housing data and preliminary PMIs
Otherwise, there's plenty of housing data released throughout the week, starting with NAHB's housing market index tonight, expected to shift from the middle. Building permits and housing starts on Tuesday, where the latter has, on average, been closer to forecasts. The weekly mortgage applications have suffered as of late, as key home lending rates remain in tested territory, and existing home sales on Thursday, averaging lower as homeowners locked in with lower rates are disincentivised from selling.
Preliminary PMIs (Purchasing Managers' Index) will be released on Friday to see if services can remain in expansionary territory, or else join the manufacturing sector in falling into contraction.
While it might not be on the economic calendar, you can expect market participants to anxiously await any updates on the fiscal policy front regarding whether a government shutdown can be avoided. Time is running out, and differences are arising regarding a short-term stopgap bill.
Dow technical analysis, overview, strategies, and levels
The intraweek highs and lows within its previous weekly 1st levels resulted in a lack of opportunities for both conformist and contrarian strategies. However, the daily timeframe presented a different story. On Thursday, there was a significant boost that eventually breached its daily 1st Resistance level, initially favoring cautious conformists. It continued to rise, reaching its 2nd Resistance level, marking a win for contrarian buy-breakouts.
However, Friday's market movement reversed most of these gains, once again favoring the former group. It was a wild ride on the strategic front. Despite this volatility, the technical overviews haven’t changed. They still indicate a 'cautious consolidation' ahead of upcoming fundamental events.
IG client* and CoT** sentiment for the Dow
Little change in price by the close usually means little change in retail trader bias, opting to remain in majority short territory and only dropping from 60% to 58% since last Monday. As for CoT speculators, also majority to the sell side though a notch higher at 61% (longs +543 lots, shorts +1,719). They are also majority short in the S&P 500 and Russell 2000, and not far off from shifting to it from slight buy when it comes to the Nasdaq 100.
Dow chart with retail and institutional sentiment
- *The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of the start of this week for the outer circle. Inner circle is from the start of last week.
- **CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.
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